Reality Check: Despite Hype, LCD Growth to Continue

LCD production news lately has not been good: LG.Philips LCD recently announced major losses for Q2 2006 and, thus, scaled back plans for new production lines; Taiwanese manufacturers have reduced production and increased worker furloughs; LCD panel inventories are high, and some fear prices will fall below profit thresholds as makers panic in their attempts to empty their warehouses.

On the other hand, at least one analyst, Pacific Media Associates, sees positive signs amid all the angst, which it says is largely the result of unrealistic growth forecasts.

"The LCD industry is dealing with the results of exuberance that may have been a bit irrational," said Rosemary Abowd, a PMA vice president who follows the LCD market. "A number of industry sources have been predicting breathtaking annual growth rates. As a result, manufacturers have embarked on an 'arms race' of expanding production capacity. The attitude seems to be that an oversupply is acceptable [as] long as it's your company's panels that are being sold."

Menlo Park, Calif.-based PMA also said in a statement the semiconductor industry has a long history of ignoring consumer demand with often-disastrous results.

As evidence, PMA points to the Consumer Electronics Association's estimates that 32.5 million sets (of all sizes and technologies) were sold in the United States during the last calendar year. At the same time, PMA estimated that consumers bought about 2.6 million flat-panel units of 30 inches or larger (LCD and plasma), plus another 3 million rear-projection sets. Therefore, only about one in six consumers in 2005 who bought a new TV paid more than $800 and, therefore, were not buying either LCD or plasma sets.

For 2006, PMA forecasts total sales of 4.4 million plasma and LCD flat-panels (30 inches or larger). While this signifies a sizeable increase of nearly 70 percent over 2005 numbers, it's still considerably less than the overly optimistic triple-digit growth forecast earlier by some.